A few days ago in a post about whether Google was being fair to AdSense publishers, I mentioned how Google's share of AdSense revenue has actually been declining in the past year. In the beginning of 2007, Google gave an average of around 84% of revenue earned through AdSense back to publishers, but in the last 4 reported quarters, it's been 89%.

AdSense revenue also seems to have stalled, while revenue from Google's other web sites continues to grow. In 1Q04 Google kept $63 million from adsense compared to the $303 million they earned from their site. But in 3Q04 they only kept $184 million from AdSense which is tiny compared to the $3.67 billion in ad revenue they generated on their own sites. You can see how much it's fallen in the following chart.

Looking at these numbers, I have to wonder if Google might be thinking AdSense might be more trouble than it's worth?

I'm not sure if this is a coincidence, or the cause or a solution to a problem, but around the same time that total AdSense revenue began to flatline, is also the same time that Google started disabling arbitrage accounts. At least those using the crappy MFA (made for AdSense) landing pages.

Lately, it seems like they have also been disabling more accounts and from the looks of the sites that people are complaining about, it might be that they're working on increasing the quality of the sites they want to participate in the AdSense program. A lot of people have been complaining about being banned from AdSense.

This makes me think that Google is seeing a decrease in conversions for their advertisers and is trying to improve the conversion rate. Earlier this year they stopped the AdSense for Referrals program. That program was based solely on conversions which makes me wonder if Google is having a hard time converting AdSense publisher's traffic.

Let's take a different look at Google's revenue from AdSense. Below is a chart showing how much money Google keeps from running AdSense. The revenue generated minus the traffic acquisition cost, what publishers keep. Values are in thousands so $100k is $100 million.

As you can see, Google has been making less money from AdSense since around the 2Q07 except for the spike in the third quarter of that year. In their quarterly reports they always say that the increases in revenue they are seeing is from an increased volume of clicks and that the earnings per click are lower.

If they're getting more clicks, they're serving more ads and likely adding more and more publishers. There's a lot of overhead involved with all that. All their servers, programmers, employees,etc. You have to wonder if stockholders might be thinking if $180 million a quarter is worth the effort or if they should be focusing on keeping the AdSense revenue to themselves. Especially now that GOOG is trading at about half of what it was a year ago.

I don't think Google will abandon AdSense. They're taking a smaller cut of AdSense revenues and that makes me think they care about their AdSense publishers. They're also working on improving AdSense and increasing the benefit to advertisers. But what if their efforts fail? Things are different now that they have shareholders to worry about.

You probably shouldn't panic, but you might want to take a closer look at your site to make sure you're following AdSense policies and guidelines and that your sites contain good content that adds value. And hope that your site's clicks convert well.

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comments:

Anonymous
said...

Google should scrap Adsense for two main reasons: Its not relevant and it doesnt add value. When has anyone ever purchased anything from one of the random Adsense partners? Let alone, gone to their page (other than by mistake)? When has Adsense ever suggested a site that was relevant to what you were looking for? Adsense is based soley off hypothetical value and does nothing to benefit the experience of the Internet's users.

google is not going to end the adsense program... 180million per quarter is good money even for google. the costs of administering the program are far less than that. adsense is a pretty small team at google, and even if server costs are 10million per quarter, it is very profitable for them.

but you are ignoring another huge issue. if google terminates adsense, there goes one of the huge incentives for publishers to keep publishing. if webmasters stop publishing, the internet becomes less valuable, and if the internet becomes less valuable, then google.com ceases to be as lucrative, because people use it to access quality info. adsense helps to create an entire ecosystem, and killing it would hurt google more than anyone else.

You don't think Google is looking at the number of clicks and thinking how they can get those clicks instead of letting them go to AdSense publishers? Regular visitors on sites get ad blind quickly so clicks usually come from new visitors, new visitors generally come from search engines. Why not go from search to click without passing through some other page?

"if webmasters stop publishing, the internet becomes less valuable"

That's not true, there are so many people publishing crap just to make money from AdSense. Google doesn't need to return 100,000 pages for each search result. Most people don't go past the first page of search results.

Are these data specific to AdSense for Content? Or do they include AdSense for Search, as well? I'm curious as I'd always thought Google did not break out these financials in their earnings statements.

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